GST blues: Earth-moving, construction equipment majors fear dip in growth

Modi govt's ambitious infra projects may also be hit due to high rate of tax on sector under GST

The earth-moving and construction equipment (ECE) segment, which was returning to the growth path, is worried that after the introduction of the goods and services tax its growth will dip.

Though such equipment are used in infrastructure, almost 50 per cent of it is taxed as luxury items.

Anand Sundaresan, president, Indian Construction Equipment Manufacturers’ Association (ICEMA), said the earth-moving and construction equipment (ECE) industry witnessed year-on-year decline until the end of 2015.

For the first time in five years, in 2016 the industry grew after the much-required push from the government in terms of budget allocation and resuming stalled projects especially in the road sector.

This has pushed capacity utilisation to 50-70 per cent from around 40 per cent in 2010-11. However, in December last year, the industry was hit by demonetisation, though for a brief period.  Then in April-May this year, sales were hit badly due to the confusion about the court order on the ban on BS III automobiles.

“Now what is surprising is that the GST rate for ECE puts them in the highest bracket of 28 per cent from around 18 per cent now," said Sundaresan, who is also chairman of Schwing Stetter India, the subsidiary of German construction equipment major Schwing Stetter.”

Around 50 per cent of the equipment will fall under the 28 per cent bracket. These include wheeled-loaders, backhoe loaders, soil compactors, and excavators. They are vital for raising the rate of road building to 40 km per day by March next year from the current 23 km a day. Besides, the railways sector, including Metro, is also picking up.

Also, the earthmoving and construction equipment industry plays a significant role in the Swachh Bharat programme, in which the bulk handling of solid waste is possible only with these machines. “We are catering for the infrastructure sector, which is key to the country's growth. But we are taxed as a luxury item,” said Sundaresan.

It would have effects on the cash flow of contractors who cater for infrastructure, he added. While the input tax is 28 per cent, output is taxed at 12 per cent, and hence the balance needs to be borne by the industry.

Due to this anticipated price hike, the current surge of infrastructure-related activities would be adversely affected, said Sundaresan.

“The immediate impact will be 15-20 per cent drop in sales, which is huge,” he added.

Exports were not possible, he said, since most of the original equipment manufacturers are 100 per cent subsidiaries of multinational firms.

“Though we have the cost advantage and quality, we will not be able to export since we have territorial issues,” he added.